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Lord Haskel: My Lords, I thank the noble Baroness for those comments. My answer is the same as that given in the Commons; namely, that it is a matter of rounding. However, we will take note of the noble Baroness's remarks. It will not become common practice. I imagine that, as these matters are rounded each year, so they will even out.
The draft order before the House today is a straightforward provision which prescribes rateable values for the year 1997-98 for the operational lands and heritages occupied by ScotRail, and other franchise operators who are now in rateable occupation of property acquired from the British Railways Board.
The prescribed rateable value figure taken from the British Railways Board (Rateable Values)(Scotland) Order 1995 has been adjusted to take account of the disposal of a number of properties, and to arrive at a new prescribed total of £602,600 for 1997-98. That figure has been apportioned among the franchise operators on the basis of rental evidence from the current regulatory and charging regime and between local authorities on the basis of the locations of the properties concerned.
When the ScotRail passenger rail franchise was acquired by the National Express Group on 1st April 1997, the British Railways Board (Rateable Values)(Scotland) Order 1995, which had prescribed the rateable value of property occupied by British Rail, ceased to have any effect. This draft order prescribes the rateable value for the new occupiers and merely continues the previous rating arrangements.
The draft order has been subject to consultation, with local authorities and the franchise operators concerned. All are in agreement with the proposal. Further orders will be required for 1998-99 and 1999-2000 in due course. I commend the order to the House.
The noble Lord said: I beg to move the Motion standing in my name on the Order Paper. At the same time, I wish to speak to the draft Social Security (Reduced Rates of Class 1 Contributions, and Rebates) (Money Purchase Contracted-out Schemes) Order 1998.
We believe that the two Budgets announced by the Government are good for the economy and will be good for pensions schemes in the long term. However, there was a need to ensure that personal pension holders did not lose out in the short term. We do not believe that there is the same short term problem for contracted-out money purchase schemes (COMPS). The rebates are reviewed every five years, and the next quinquennial review is due in three years. We believe there is no early action necessary in relation to this issue. That also applies to contracted-out salary related schemes (COSRS).
We do not believe that there is a problem for occupational pension schemes. Like the Government, they can take a longer view. A significant number of schemes are more than adequately funded, with some employers on contribution holidays and others paying contributions at a reduced rate. Because of the particular profile of some schemes, many do not have to rely on the contingency margin in the contracted-out salary related scheme rebate. These factors cover any short-term problems which may arise.
The current COMPS rebate reflects the fact that most COMPS were insured and had a small number of members. That was certainly the position in 1996, when the rebates were last set. Consequently, the rebate contains an expense allowance which recognises the higher administrative costs associated with running a small insured COMP.
However, since 1996 a number of changes have taken place which have altered the nature and composition of COMP schemes. We know that a number of schemes which were previously contracted out on a salary-related basis have switched to contracting-out on a money-purchase basis. Some of them have switched purely to take advantage of the higher rebates available to these schemes without any change in the benefits that they provide. Others have switched for business reasons not connected to the rebate. That is why from April
I do not believe that money purchase provision is about to become extinct. I do accept that contracted-out money-purchase arrangements have been on the decline for some while, but this is a trend that was established well before we took office. We have to accept that some pension providers will be quick to capitalise on any new arrangements, particularly if there is money to be made. But the rebates are to be reviewed at the latest in three years' time. This will be a full review, when we can give proper consideration to all aspects, including how they will fit with stakeholder pensions schemes. We shall also be looking then to ensure that there are no unwanted distortions in the system which are responsible for driving behaviour in a way which does not fit with the aims and objectives of contracting-out.
I fully recognise that this is a difficult and complex area. It is also clear that the rebate structure that we have inherited has over the past 20 years created inequalities. It is one which does not always match the needs of the different types of contracted-out pension provision now available. It is of fundamental importance that the aims and objectives of contracting out support the overall pensions framework. We fully intend to examine these difficulties within the context of the pensions review, but in the short term these orders do what is needed and I commend them to the House.
Earl Howe: My Lords, the Minister's introduction of these orders, for which the House will be grateful, gives the impression of a routine and uncontentious pair of measures. The fact that we are debating them on a Friday afternoon perhaps accentuates that impression. If only it were thus. The reality is, unfortunately, very different.
I do not relish using strong terminology in your Lordships' House, but the second of these orders represents, in my view, a most serious betrayal of substantial groups of pensioners who, before the Government were elected to office, had reason to expect much better things.
I hope the House will forgive me if I briefly set out the background. There are three types of pensions which one can have when working: an occupational contracted-out money-purchase scheme (COMP); an occupational contracted-out salary-related scheme (COSR); and a personal pension. A member of one these schemes receives a rebate from national insurance contributions to pay into the pension fund. The amount of that rebate is determined by the Government.
Last July the Chancellor abolished ACT dividend tax credits for pension funds. The Opposition, both here and in another place, and many people in the pensions industry said that this would have a very damaging effect on pension funds. The National Association of Pension Funds strongly criticised the Chancellor's proposed changes to ACT. As a result, nearly five
The key assumption underlying those recommendations was that the return on investment for pension funds would be down by ¼ per cent. per annum. What did the Government do? They proceeded to accept the rebate figures based on that assumption for salary-related schemes and personal pensions but for money-purchase schemes they chose to ignore the assumption altogether and instead to opt for a rebate figure which, not to put too fine a point on it, would save the Treasury the maximum possible amount of money.
The result is that a larger rebate will be received on personal pensions, albeit not for nearly two years after the July Budget, but occupational pensions, and especially money-purchase schemes, have been hit. The COSR rebate has been frozen and the COMP rebate has been reduced way below the Government Actuary's recommendation. This creates a completely inconsistent regime for the three types of pension, each of which has suffered equally as a result of the ACT changes. There is no logic to that and, more important perhaps, there is no justice, either.
The Chancellor of the Exchequer, when Shadow Chancellor, said during the election campaign said that all Labour's proposals would protect and improve the quality of life of pensioners. Yet within weeks of being elected to office the new Government gave us a Budget which directly penalised pension funds, a fact which they initially chose not to acknowledge, and subsequent to that, despite unequivocal advice from the Government Actuary, they have now taken measures which target occupational pensions, and specifically the contingency margins within them, as a source of free revenue for the Exchequer. The public as a whole are not aware of this. That ignorance is not surprising because the changes are hidden in technical and abstruse corners of statutory instruments and regulations which slip through Parliament largely unreported.
The questions for the Government are fundamental. The effect of the Government's failure to increase the COSR rebate is that the cost of contracting out will be higher than the cost of providing a benefit equivalent to SERPS. Do the Government accept that this will mean that many employers and scheme members will now pay more for contracted-out benefits than they would have paid if the employment had been contracted in? Do they also agree that the Budget change will leave many more COSR schemes reliant on their contingency margins than was the case before?
Turning to COMPS, do the Government agree that the effect of their decision will be to discourage such schemes and encourage employers to switch from COMPS to group personal pension schemes? Small employers, in particular, are apparently being told that
The effect of the second measure under discussion is quite simply to penalise money-purchase scheme members and small employers by reducing their rebate in order to finance the increase to the personal pension rebate which is needed to avoid many millions of personal pension holders returning to SERPS.
Despite their commitment to open government, the Government have not been open in explaining the effects of this measure on members of occupational schemes. That is to be deplored. There was no consultation on the Government Actuary's draft report, even though such consultation is routine in these circumstances. The Government have said one thing and done the opposite, hoping that no one will notice. I wonder whether the net result of all this will be to save money at the end of the day once people discover how the figures stack up.
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